Govt may not okay financial code to dilute RBI chief’s power

Finance minister had earlier withdrawn complex income tax returns forms

GN Bureau | July 27, 2015


#financial code   #ifc   #arun jaitley   #income tax  

After being forced to revise income-tax returns forms, finance minister Arun Jaitley may also revise the draft of Indian financial code (IFC) which proposes to dilute powers of the RBI governor in interest rate decision.

He said today said that the government will take a view on the draft IFC after receiving comments from stakeholders.

“FSLRC (financial sector legislative reforms commission) has made its recommendations, which have been made public for comments. After the comments are received, it is only then that the government will take a view,” Jaitley told reporters in Delhi.

The draft had proposed taking away Reserve Bank chief’s authority to veto the interest rate decision of the central bank’s monetary policy committee.

The revised draft of IFC also proposed that the committee would have four representatives of the government and only three from the central bank, including the ‘RBI chairperson’.

The draft talks of ‘RBI chairperson’ and not ‘RBI governor’. RBI is headed by a governor, at present.The revised draft of IFC, released by the finance ministry last week, is based on the recommendations of the FSLRC headed by Justice B N Srikrishna.

At present, the RBI governor consults a technical advisory committee, but does not necessarily go by the majority opinion while deciding on the monetary policy stance.

Last week, chief economic adviser Arvind Subramanian said “FSLRC report is a report of FSLRC. It is not the report of the government or the finance ministry. The report is not the view of the government, commenting on media reports that the government is seeking to dilute RBI governor’s powers in deciding interest rate.”

The revised draft of IFC, posted on the website of the Finance Ministry, has said RBI “must constitute a Monetary Policy Committee to determine by majority vote on the Policy Rate required to achieve the inflation target”.

The first draft, submitted in March 2013, too had talked about the committee and majority vote, but gave powers to RBI chairperson to supersede the decision of the panel.

“In exceptional and unusual circumstances, if the RBI Chairperson disagrees with a decision taken at a meeting of the Monetary Policy Committee, the RBI Chairperson will have the right to supersede such decision,” it had said.

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